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When complete, the Richmond Industrial Centre will be one of Metro Vancouver’s largest industrial parks.SUPPLIED

Sector experiencing strong demand, low availability, record sales

Amid what is set to be a record-shattering year for commercial real estate investment, the industrial sector is the clear asset winner, ratcheting up higher sales volume than multifamily housing, retail or any other type of commercial real estate.

During the second quarter alone, investors spent more than $4.1 billion on Canadian industrial buildings and land, according to Colliers reports. Strong tailwinds have experts predicting total 2021 sales will be the asset’s highest ever.

Across the country, upward pressure persists on industrial space leases, sale prices and land prices, as growing demand has plunged vacancy rates to unimaginable lows. According to Colliers, 10 out of 12 Canadian industrial markets saw vacancy rate contractions in Q3; the national rate this month is 1.5 per cent.

“Most markets in Canada have been under supplied since the 2009 financial crisis,” explains Gord Cook, executive vice-president at Colliers in Toronto who specializes in industrial space. “Now, major markets, such as Toronto and Vancouver, have industrial vacancy rates of less than 1 per cent” – the lowest rates in North America.

Despite a strong development pipeline, this low vacancy rate scenario will stay in place given that the industrial development process can easily take three years, from approvals through to building completion.

Meanwhile, demand for industrial space “has been dramatically strong,” says Cook.

Pandemic stay-at-home measures catapulted online sales to a whopping 18 per cent of retail sales worldwide. This figure is expected to reach 21.8 per cent by 2024, according to Colliers research.

“The transformation to e-commerce has put tremendous pressure on industrial space,” Cook says, where consumer products, such as appliances and building supplies for renovations, are warehoused. The Colliers reports predict that Canadian cities could run out of industrial space within a year.

Indeed, the impact of online shopping on industrial space is so profound, “it might not be accurate to refer to this space as ‘industrial’ in today’s world, as this infers some involvement in making things,” argues James McKellar, professor of real estate and infrastructure at York University. “Most of the new space is warehousing and distribution and part of a large logistics chain that is global.”

Vancouver, with the country’s most critical shortage of logistical space, is constrained by mountains, the ocean and the border, and by the ALR. It also has a busy port that unloaded a record 3.5 million shipping containers in 2020, according to Port of Vancouver. According to the Vancouver Regional Industrial Lands Strategy Report, 2020, “The last of the region’s effective supply will be absorbed between 2028 and 2035.”

Major markets, such as Toronto and Vancouver, have industrial vacancy rates of less than 1 per cent.

Gord Cook, executive vice-president at Colliers

As the city’s serviced industrial land base shrinks close to zero, leases and land prices have hit record highs, according to Colliers Canada National Market Snapshot 2021 Q3.

Landlords are asking an average of $15.50 per square foot, up nearly 16.9 per cent from a year ago – the second highest rate in Canada behind Victoria and the second highest among major markets in North America. (Victoria’s rate is highest in Canada at $16.02; Toronto’s rate is $10.66; Montreal’s $8.41.) Industrial strata space sells for an average of $488 per square foot, a price that can more than double in the city centre.

Stuart Morrison, executive vice-president at Colliers in Vancouver who also specializes in the industrial sector, says, in Metro Vancouver, many businesses seek the kind of bulk-size warehouse space that companies like Amazon have already absorbed in every large Canadian city. This is the city’s fifth consecutive quarter with zero vacancy for space greater than 100,000 square feet, Morrison points out.

Capitalizing on this extraordinarily tight market, a local developer is building one of the largest industrial parks in Metro Vancouver.

Richmond Industrial Centre, by Montrose Properties, will consist of more than 3 million square feet of industrial space. The $350-million Colliers-marketed project will include up to 12 buildings ranging from 100,000 to 500,000 square feet when completed in 2027.

“It’s the ultimate distribution and fulfillment centre project,” says Morrison. “It’s a central logistics location with optimum efficiencies for its tenants.”

Immensity isn’t the only factor when it comes to choice logistics sites. Morrison says, “Designs prioritize energy-efficiency and automation capacity,” with pre-wired EV charging points to accommodate electric forklifts and electric truck fleets of the future. Access to public transit is key.

Richmond Industrial Centre’s proximity to Metro Vancouver businesses, retailers and households can reduce costly last mile deliveries – which already account for more than half of total supply chain costs, according to Colliers research.

Location is also changing the global industrial real estate market, McKellar says. “Historically, growth was directed outward” to smaller cities fringing large urban centres. “Today, it is directed inward to central areas.”

Richmond Industrial Centre, he says, “is well placed in the logistics chain,” between the port, airport and the end customer.

Still, adds Morrison, in a metropolis with an industrial space vacancy rate of just 0.5 per cent, a huge amount of unsatisfied demand remains.

Advertising feature produced by Globe Content Studio with Colliers. The Globe’s editorial department was not involved.

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